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Sea of Opportunity: Supply Chain Investment Opportunities to Address Marine Plastic Pollution (Executive Summary)

February 1, 2017

Philanthropist Paul G. Allen funded this report to identify impact investment opportunities for those joining the fight to eliminate plastics pollution as a significant contributor to the rapidly deteriorating health of our ocean. Millions of metric tons of plastic are dumped into our ocean annually, and through this report potential investors will beter understand how they can most efficiently and effectively help to disrupt the plastics supply chain and prevent plastics pollution in the first place. Mr. Allen's unique data- and technology-driven approach to some of the world's toughest challenges catalyzes innovation, improves policy, and accelerates change for the beter. He believes this report can have the same effect on the future of our ocean.This report is intended solely as an informational resource for those individuals and organizations seeking to support solutions to the problem of ocean plastics. It is not intended to prescribe specific investment approaches, speculate about potential risks or returns, or recommend individual companies for investment. And, as always, investors need to conduct their own extensive due diligence on these suggestions before making any investments. This report does not claim to have completed exhaustive due diligence on any of these approaches.This report has been produced by Encourage Capital who takes full responsibility for the report's contents and conclusions. While our technical advisors and the many organizations consulted have greatly informed the content of this report, their participation does not necessarily imply endorsement of the report's contents or its conclusions. We are very thankful for their contributions.

Executive Summary for Investing for Sustainable Global Fisheries

January 15, 2016

This publication is an Executive Summary of Investing for Sustainable Global Fisheries. This summary provides a brief overview of the work that was undertaken, a description of each Investment Blueprint, and some of the critical findings from the work. At the heart of each Investment Blueprint lies a proposed set of fishery management improvements and profitable investments that seek to have positive ecological and social impacts. On the ecological side, the goals are to maintain or restore fish stocks, reduce bycatch of nontarget species, and protect and restore marine habitat. On the social side, the goals are to improve fisher livelihoods, empower local communities, and contribute to local and regional food security.

Investing for Sustainable Global Fisheries

January 12, 2016

To better channel the flow of capital to the sustainable fisheries need and opportunity, Bloomberg Philanthropies and The Rockefeller Foundation supported Encourage Capital to develop six Investment Blueprints, each intended to serve as a roadmap for the growing number of investors, entrepreneurs, and fishery stakeholders seeking to attract and deploy private capital both to scale and to accelerate fisheries reform. The Investment Blueprints profile hypothetical investment strategies for application to three types of fisheries, including small-scale fisheries, focused on improving management of moderately distressed near-shore fish stocks landed by community-based, artisanal fishers using small vessels; industrial-scale fisheries, focused on improving management of severely distressed fish stocks landed by both artisanal and industrial fishers using a wide range of vessels and gear types; and national-scale fisheries, focused on implementing specific national-scale management improvements. The Investment Blueprints present investment strategies based on prototype fisheries spanning three countries and more than 25 species. By analyzing specific fisheries' current productivity, ecology, potential long-term yield, management regime, and supply-chain dynamics, Encourage was able to design and structure investment strategies that incorporate real-world risks and return potential. The Investment Blueprints offer viable models that can be replicated across a wide array of fisheries and geographies, mobilizing private capital to protect and restore the oceans' bounty.

The Mariscos Strategy : An Investment Blueprint for Small-Scale Fisheries in Chile

January 11, 2016

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop an impact investing strategy supporting the implementation of sustainable fishing improvements in a portfolio of small-scale, multispecies fisheries in Chile. The Mariscos Strategy is a hypothetical $7.0 million impact investment to protect seven small-scale fisheries along the Chilean coastline. The $7.0 million would fund the implementation of fisheries management improvements across the fisheries, and be used to expand an existing consumer packaged goods company producing gourmet "heat-and-eat" meals for Latin American consumers. The Mariscos Strategy is focused on generating an 11.1% base case equity return, while simultaneously protecting the multispecies stock biomass from current and future overfishing, enhancing almost 550 fisher livelihoods across seven fishing communities, and safeguarding the supply of over 5 million meals-to-market annually.

The Mangue Strategy : An Investment Blueprint for Small-Scale Fisheries in Brazil

January 11, 2016

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop an impact investing strategy supporting the implementation of sustainable management and extraction practices in a small-scale fishery in Brazil. The Mangue Strategy (Mangue) is a hypothetical $15 million impact investment to protect the mangrove crab (Ucides cordatus) fishery in the Brazilian state of Pará. This $15 million investment would fund the implementation of critical management improvements across the fishery, and be used to launch a crab export business with a network of buying stations and a modern processing facility designed to meet both domestic and international food safety standards. The Mangue Strategy has the potential to generate a 12.0% levered equity return while protecting the mangrove crab stock biomass from current and future overfishing, enhancing up to 1,300 fisher livelihoods across 10 extractive reserves (RESEXs), and providing an additional 2.4 million seafood meals to market annually by Year 9. Additionally, the strategy would support the sustainable management of up to 300,000 hectares of critical coastal mangrove forest within the Amazon Delta, protecting and capturing the economic and ecosystem services of this delicate ecosystem.

The Isda Strategy : An Investment Blueprint for Small-Scale Fisheries in the Philippines

January 11, 2016

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop an impact investing strategy supporting the implementation of sustainable fishing practices in a portfolio of small-scale fisheries in the Philippines. The Isda Strategy1 is a hypothetical $11.7 million impact investment to protect and restore small-scale fisheries spanning 80 communities across the Philippine archipelago and at least 20 species. The $11.7 million would fund the implementation of fisheries management improvements across both pelagic and nearshore fisheries, and be used to expand a seafood processing and distribution company producing premium seafood products, sourced from small-scale fishers, for both domestic and export markets. The Isda Strategy has the potential to generate a 20.7% base case equity return, while simultaneously protecting the multispecies stock biomass from current and future overfishing, enhancing the livelihoods of up to 19,000 fishers across 80 fishing communities, and safeguarding the supply of 6.7 million meals-to-market annually.

The Merluza Strategy : An Investment Blueprint for Industrial-Scale Fisheries in Chile

January 11, 2016

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop an impact-investing strategy supporting the implementation of sustainable fishing improvements in the distressed common hake fishery in Chile. The Merluza Strategy is a hypothetical $17.5 million impact investment to restore the hake fishery to its full biological and economic potential. The $17.5 million would fund the implementation of comprehensive fishery management improvements across the fishery, acquire 36% of the total fishing rights (or "quota") in the fishery, and create a new hake processing and distribution business incorporating jumbo squid products and sales. The Merluza Strategy targets the generation of a 16.4% base-case equity return with upside potential up to 35%, while simultaneously restoring hake stock to 75% of its biomass at Maximum Sustainable Yield (BMSY), generating $104 million in additional income for fishers divided among nearly 1,800 fishers across 12 caletas and delivering 136 million additional legal hake meals-to-market annually.

The Sapo Strategy : An Investment Blueprint for Industrial-Scale Fisheries in Brazil

January 11, 2016

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop and evaluate an impact investing strategy supporting the implementation of sustainable fishing improvements in the distressed monkfish (Lophius gastrophysus) fishery in Brazil. The Sapo Strategy (Sapo) is a hypothetical $11.5 million greenfield impact investment to create Brazil's first sustainability-focused, vertically integrated seafood company, with the objective of restoring the stocks of both the monkfish and related fisheries to full productive potential. In a fishery that does not have quota or other forms of formal tenure over the resource, this approach suggests how fisheries management investments in Brazil can support the needs of a cash-constrained public sector, and yield attractive returns to investors while restoring marine ecosystems and benefiting local economies. The $11.5 million investment would be predicated on working with authorities to reform fisheries policy to ensure access limitations, establish secure, stable resource tenure in the form of a "catch share" system, and strong enforcement and monitoring. The strategy would enable the design and implementation of comprehensive fishery management improvements, purchase and retire up to 15 double-rigged trawl vessels and licenses, control at least 85% of licenses/quota and associated gillnet vessels in the monkfish fishery, and create a new monkfish processing and distribution business to manage sales and export to international buyers. Given the current challenging policy environment in Brazil, certain enabling considerations must be met in order for the strategy to be viable. Sapo is targeting an 17.5% base case levered (equity) IRR, with upside potential of over 30%, while simultaneously restoring the monkfish stock biomass, generating $7.9 million in additional revenues to fund gillnet fishers' incomes and offer social benefits, and increasing meals-to-market by 7.5 million portions annually over the eleven-year investment period.

The Nexus Blue Strategy : An Investment Blueprint for National-Scale Fisheries in The Philippines

January 11, 2016

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop the first sustainable fisheries public-private partnership (or "PPP") impact investment strategy. The Nexus Blue Strategy (Nexus Blue) is a hypothetical $34.0 million PPP impact investment to improve IUU (illegal, unreported, and unregulated) enforcement and facilitate transparency and information sharing across the supply chains of these high-value products. This investment will pay for the deployment of hard and soft infrastructure to combat IUU fishing and to facilitate transparency and information sharing across the supply chains of high-value fish species. Private capital proceeds will be used to refurbish and operate the General Santos Fish Port Complex (GenSan), the largest tuna port in the Philippines, and invest in data collection and monitoring of the relevant fisheries. Proceeds will pay for hard infrastructure as well as the deployment of IT infrastructure to virtually link the downstream buyers, upstream (on-the-water) harvesters, port market actors, dockside catch accountants, national and regional fisheries authorities, and independent researchers. This "soft" infrastructure will leverage constrained fisheries management and enforcement resources far more effectively by integrating digital capabilities and applying "big data" analytics. By using the analytics and traceability tools common across nearly every other product supply chain, regulators can also harness the power of the market by arming buyers with the knowledge to punish violators while rewarding sustainable practices. Integrated PPP investments of this nature promise to eliminate the long standing information and cost barriers to strong, coordinated, multi-stakeholder fisheries management facing the "highly-migratory pelagic" fisheries of the Western and Central Pacific Ocean (WCPO). Nexus Blue intends to achieve these objectives by upgrading strategic port infrastructure and post-harvest facilities, installing 2.4 MW in solar PV capacity, and deploying the IT hardware and software to fight IUU fishing while informing better resource management across the 429 vessel fleet actively using the port. Investors would be compensated through the ongoing collection of port fees and rental revenues under a 30-year PPP concession with the Philippine government. These measures will also ensure compliance with EU and U.S. demands for monitoring, control and surveillance (MCS) and chain-of-custody to address the scourge of IUU fishing in the region. The poor, highly-vulnerable nearshore fishers who are directly harmed by the illegal fishing operations that poach fish from their local waters stand to benefit from a share of the $620 million that IUU fishing costs the Philippines alone each year. The Nexus Blue Strategy targets a 15.0% blended IRR and 22.3% equity IRR2 for investors over a 33-year term (including a 3-year construction & implementation period in addition to the 30-year concession.)